U-turn on how much Albertans will receive makes one wonder

Nobody should be surprised by the Alberta government's U-turn on
energy royalties.

The Conservatives have been driving along with
their turn-indicator light blinking for the past six months. We knew
they were getting ready to turn the wheel; we just didn't know how hard.

So, did Premier Ed Stelmach just pull off a smooth
lane change? Or should he be charged with reckless driving?

It all
depends on your perspective, on whether you think the government was
right to raise royalty rates in the first place a few years ago or
should have been hit over the head with a tire iron at the time for
meddling with Alberta's economic engine.

I happen to think a bit
of both: that the government was right to raise the royalty rates and
now deserves to be hit over the head for reversing itself.

Here's
why. Call it a tale of two government-sponsored reports.

One,
written by academics and business experts, reached this conclusion after
holding public hearings in 2007: "Albertans do not receive their fair
share from energy development."

The second, written by government
and energy executives behind closed doors, was released on Thursday and
pretty much reached this conclusion: Alberta energy companies do not
receive their fair share from energy development.

The 2007 report
-- with the blunt and self-explanatory title, "Our Fair Share" -- not
only led the Alberta government to hike royalty rates but also heralded a
new transparency in provincial politics where Premier Stelmach kept a
promise to make the report public soon after he received it.

This
week's report -- with the fuzzy and self-congratulatory title,
"Energizing Investment: A Framework to Improve Alberta's Natural Gas and
Conventional Oil Competitiveness" -- has led the government to reverse
itself, reduce royalty rates and reinforce a return to closed-door
politics.

The 2007 report took a long-term view of oil and gas
resources, saying that while Albertans deserve a fair share of royalties
today, future generations shouldn't be cheated -- even if that means
slowing the pace of development somewhat.

The new report takes a
much shorter-term view, focusing on immediate results to kick-start more
drilling activity and concludes: "The hard truth is that Alberta has
lost competitive ground."

It might be a "hard truth" for the
government, but it's hard to swallow for the authors of the 2007 report.
They argue the government -- as a representative of you, the owner of
the resources -- should not have backed down to industry pressure to
lower rates.

"If we produce it, get all the revenues and then
spend it right away, we're not transforming this asset into a financial
asset to kind of ensure that we've got revenue flows down the road,"
said Andre Plourde, energy economist at the University of Alberta and
one of the "Our Fair Share" authors. He has called the government's
actions on royalties "shameful."

Shameful, perhaps, but also
understandable politically.

Premier Stelmach bowed to pressure
from energy companies not because he's weak but because he was unlucky.

He announced the new royalty framework in 2007 right
before the 2008 economic collapse that drove down the prices of oil and
gas. Adding to the government's misery, it had tied royalties on a
sliding scale to the price of oil and gas.

So, not only did the
province's economy suffer by the recession, the province also took in
less money under the new royalty rates than under the old system.
Coincidentally, drilling activity increased in Saskatchewan thanks to
new technology used to exploit the old Bakken oilfield, and British
Columbia introduced low royalty rates to attract investment to its gas
deposits. Our neighbours seemed to be doing better than us. Natural gas
prices were hammered even further by big discoveries of shale gas
deposits in the United States.

It was one sucker punch after
another for Stelmach, who might have withstood the pummelling if the
Wildrose Alliance hadn't come along and elected as its leader the
articulate, telegenic, Calgarybased and energy-industry-friendly
Danielle Smith.

The latest public opinion poll shows the
Conservatives and Wildrose Alliance in a virtual dead heat with the
Wildrose enjoying a boost in popularity thanks to widespread anger in
Calgary with Stelmach over royalties. Stelmach is betting his revised
royalty rates will win Calgarians back and undermine Wildrose support.

He's
also betting that those who question why he backed down on conventional
oil and gas rates will realize he didn't touch the recently increased
royalties on the oilsands, the largest-growing source of government
revenue.

The government argues that while it might be taking in
less money under its newly revised rates than under the "Our Fair Share"
regime, it will still be taking a bigger cut than it took in under
Ralph Klein.

Whether that's a big enough cut will be up to
Albertans to decide next election (in two years?) when they'll have a
better idea of the province's financial picture.

Perhaps by then
they'll also figure out if the one behind the wheel is indeed Stelmach,
and not the energy industry.

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